Geert Bekaert and Campbell R. Harvey's


Chronology of Economic, Political and Financial Events in Emerging Markets




Major Political and Economic Events




Foreign Investment Law ensures eventual majority ownership for Indonesian national in joint ventures. Wholly foreign-owned enterprises are permitted only in very special cases. Permits for investment projects are valid for 30 years.


Most deposit and loan rates were free. Mehrez and Kaufmann Liberalization date. a1


Central Bank certificates issued through auctions to stimulate money markets.s


Incentives granted to Foreign Investment under the Income Tax Law.a


Security houses established to serve as market makers in money market instruments. Bankers' acceptances introduced.s


Government introduces measures to allow foreigners to purchase shares in eight non-joint venture companies.


Full Financial sector liberalization. Established over-the-counter market to encourage firms to go public.s New foreign banks were allowed to establish joint ventures. a1


The legal reserve requirement for foreign currency deposits was reduced from 15% to 2%.a3


Malacca Fund (Cayman) Ltd launched as the first Country Fund.aa


Some minor foreign exchange restriction still in place.d


Buckberg Liberalization date.d


Accepted IMF's obligations for convertibility.a


IFC Liberalization date.


Minister of Finance allows foreigners to purchase up to 49% of all companies listing shares on the domestic exchange excluding financial firms.


Bekaert/Harvey Official Liberalization date. [Final version].


Kim and Singal Liberalization date.


The monopoly of state-owned banks over the deposits of state-owned enterprises were removed. Mehrez and Kaufmann's second Liberalization date. a1


Drastically reduced central bank, refinancing facilities and revised interest rates under the program to approach market rates.s


Joint-venture banks and foreign banks were permitted to open branch offices in Batan Island, an upcoming export processing zone.a3


Bekaert/Harvey Official Liberalization date. [NBER version].


ADR effective date. (Company=P.T. TOBA PULP LESTARI TBK, Exchange=OTC)a11


First privatization took place with issue of 40 million shares of the cement company PT Semen Gresik.


Investment-licensing requirements were liberalized.a3


A Debt Management Team was established to supervise foreign loan transactions and set annual targets for the total amount of foreign borrowing from commercial sources.a3


The Debt Management Team announced annual ceilings for commercial borrowings over the next five years, with subceilings for individual sectors.a3


Bank Indonesia limited banks' short term foreign exchange liabilities to 30% of capital and required that at least 80% of all foreign exchange loans be allocated to businesses earning foreign exchange.a3


The introduction of the Insider Trading Laws.a4


Government announces it will allow foreign shareholders to invest up to 49% of bank stocks.


First ADR launched.aa


(1)Full foreign ownership of foreign direct investments by nonresidents was permitted; (2) FDI with a minimum of capital of $250,000 would be permitted in certain cases; (3) foreign investors would be allowed to invest profits in the shares of other foreign firms.a3


Capital market supervisory board creates a foreign board for trading stocks by foreign investors. Standard and Poor's assigned a first time rating of BBB- to sovereign debt.i


Implementation of Bank Act of 1992 allowed foreign investors to own 49% of private national banks.


Banking crises (1992-94): classified assets involved in the banking crises equal to over 14% of banking system assets with over 70% in the state banks. Recapitalization cost of five public banks was expected to amounted to US$2.7 bn or 1.8% in 1993 GDP. Causes: (1) boom and bust cycle: liberalization of banking sector followed by credit growth; tight monetary policy adopted in 1990/1 resulted in sharp rise in real interest rates that caused money borrowers to default on their loans; (2)deregulation of banking sector began 5 years before improvements in supervision were made and 8 years before capital requirements raised; (3)lending to related parties; (4)deficiencies in banking management and lack of internal controls; (5)public bank problems attributed to political loans/connected lending/fraudulent loans and bad credit decisions. Overall change in macro policy: the government pursued tight fiscal but loose monetary policies, but tighten monetary policy again.a2


Laeven's banking liberalization (FLI) dates.a13


Restrictions on FDI were relaxed, by reducing the number of sectors closed to foreign investment and reclassifying sectors to fall under less stringent bans.a3


Liberalization package was unveiled by the government which included a reduction in import tariffs.


Requirements on FDI on land-use rights and environmental standards were liberalized. Divesture requirements were relaxed.a3


State owned electricity company Perusahaan Umum Listrik Negara is converted into corporate entity and is regarded as a leading candidate for a privatization program.


First exchange-traded overseas listing.a9


Indosat, Asia's largest IPO ($1 billion) offered 25% in overseas markets in the form of ADRs


Indosat begins trading on NYSE.


APEC agreed to open the region's markets to trade and investment by 2020.


Announcement that Jakarta Stock Exchange will split its listings into 2 boards in 4/95. One for blue chips and the other for smaller companies.


Standard and Poor's boosted Indonesia's country rating to investment grade making fixed-income investments more attractive. Concern over the devaluation of the rupiah, but low-interest loans from governments and institutions from World Bank will "unlikely" force a devaluation. International consortium agreed on a $2.5 billion financing deal for Indonesia's first large-scale private power project.


Foreign investment approvals surged to $27.7 billion. Approval for investments in textiles and chemicals. IPO of PT Bimantara Citra. Shares available to foreigners were oversubscribed 45 times.


Central bank intends to increase bank capital adequacy ratios from 8% to 10% in the next 2 years, hurting bank stocks. A new capital markets reform bill was approved which features firm penalties for offenses such as insider trading, share manipulation, and failure by individuals and group to declare significant stakes in publicly-listed companies.


Government announced in its budget that it will increase its spending on roads and other infrastructure. Foreign investors bought Indonesia's largest and most liquid stocks. A deregulation package by the government included cuts in import tariffs on capital goods, but did not give any mention to an expected liberalization in the plywood and textile industries. Anticipation of a government announcement liberalizing regulations in the plywood industry. 


The first prosecution under the Insider Trading Laws.a4


The government asked bank to limit loan growth to 17%.


A decisive victory by President Suharto's Golkar Party in the national elections.


Devaluation of the Thai Baht. Rupiah plunged nearly 7%, a record low against the dollar.


Rupiah posted a 39.8% loss in dollar terms. 


(Controls on derivatives and other instruments) Forward sales foreign currency contracts offered by domestic banks to nonresidents were limited to $5 million a bank and a customer. These restrictions do not apply to trade- and investment-related transactions. a3


Government announced plans to scrap the 49% foreign limit on IPO shares. Interest rates on short-term SBI government bills and import tariff were cut. The rupiah continued plunging to an all-time low against the dollar.


(Controls on capital and money market instruments) Foreign investors were allowed to purchase unlimited domestic shares, except for banking shares.a3


Moody's cut the country's sovereign credit rating. IMF-led aid package was formally announced. 


16 insolvent banks were closed. President Suharto's son withdrew a lawsuit against the government related to the closure of his bank, Bank Andromeda. President Suharto had urged state-owned companies to invest 1% of profit in equities. However, the closure of Yamaichi Securities in Japan triggered the sharp decline in Jakarta market.


Concerns about the health of President Suharto and a shortage of dollars triggered sharp declines in the rupiah. The country's Capital Market Supervisory Agency (Bapepam) suspended 16 brokerages for being undercapitalized. The government announced 15 new capital markets regulations.


S&P downgraded the rating of 15 Indonesian banks. The currency tumbles to more than 10,000 (from 2,400 in July). The country's two largest private banks merged. President Suharto accepted the nomination for a seventh term. The Indonesian Bank Restructuring Agency (IBRA) was unveiled as a new oversight body. Indonesia pledged to open up the banking sector to foreign ownership.


(Controls on direct investment) All barriers to foreign investments in palm oil plantations were removed.a3


(Provisions specific to commercial banks and other credit institutions) Controls on branching by foreign banks were lifted.a3


The government had reported it will guarantee all deposits and debts owed by banks. President Suharto studied the issue of a currency board system with a fixed peg. The IMF and the World Bank cautioned against the system at this stage.


Indonesia has decided to put aside the controversial plan to implement a currency board for a fixed exchange rate. A 5% tax on the purchase of foreign currencies was imposed to curtail speculation. On March 23, rates on one-month SBI government bills were doubled to 45% from 22%.


(Controls on direct investment) Controls on foreign investments in retail trade banks were lifted.a3


(Controls on direct investment) Controls on foreign investments in wholesale trade banks were lifted.a3


Government closed 7 banks and seized control of seven more banks faced with loan defaults. Government persisted in maintaining a clove monopoly, run by the president's son, Tommy Suharto. The IMF ceased disbursing aid on March 15, and will not begin again until the government carries out previously agreed reforms.


On May 5, the governments canceled subsidies on fuel and food in compliance with the IMF agreement for a $40 billion international bailout package. Riots in Jakarta escalated and culminated on May 21 with the resignation of President Suharto, who had ruled the country for 32 years. Vice President B.J. Harbibie replaced him and has pledged new general elections next year. 


Deposit rates have reached as high as 72% while annual inflation as of May was 52%. The IMF will resume aid in July. Indonesian negotiators and international creditors reached agreement on $78.2 billion in corporate foreign debt.


(Controls on direct investment) A revised and shortened list of activities closed to foreign investors was issued, and some sectional restrictions were removed.a3


Annual inflation accelerated to 68.7% in July. The Jakarta Stock Exchange is planning to install a secondary trading board  for shares of companies that do not meet its listing requirements. A new bankruptcy law was installedThe purpose of the bankruptcy measure is to provide  some means of clearing the overhang of bad debt by giving creditors a way to collect loans, and to  persuade international lenders to reopen lines of credit.dd


Rice prices have tripled since last year and are provoking student demonstrations. Unrest in Medan this month was triggered by a strike by public transport workers protesting soaring food prices.


The paid-in capital required to establish a new commercial bank, including a joint-venture bank, increased to Rp 3 trillion (US$280 million).a8


Rupia appreciated by 40.79% over last month. The government published its fifth letter of intent with the IMF, in which it explicitly stated it would not to implement capital controls 


The People’s Consultative Assembly (MPR) agreed to twelve decrees on political reforms, which include that the presidential term will be limited to two five-year periods. Fourteen  students were dead in clashes with the military.


Indonesia said it has reduced its target for the sell-off of state assets in 1988/99 to $1.0 billion from the original goal of $1.5 billion. 


Controversial political reforms was passed by Parliament on January 28 that clear the way for June 7 democratic elections. The central bank reported this month that coupon rates would be set around 20%.


(Controls on direct investment) A presidential decree was issued granting income tax holdings for up to 8 years to newly established corporations in 22 industry sectors.a3


State Enterprises Minister mentioned that the government has plans to sell a stake of at least 30% of Timah, in which the government holds a 65% stake.


On March 13, the government announced that it would close 38 banks, take over seven and recapitalize another nine in a move to strengthen the country's debt-laden banking sector. On March 29, the government and foreign creditors reached agreement on restructuring bank debts amounting to $2.5 billion. IMF Asia Pacific Director Hubert Neiss indicated that the Fund will likely provide Jakarta with up to $1 billion in additional funding this year.


(Controls on capital and money market instruments) The ceiling on the amount of stock foreigners may acquire in nonstrategic corporations without the approval of the company's board of directors was raised. (Controls on direct investment) The takeover of nonstrategic operations by foreign investors without government approval was permitted. (Provisions specific to commercial banks and other credit institutions) Equity participation of foreign banks in a joint bank was raised from 85% to 99%.a3


Democratic elections successfully completed. The rupiah appreciated sharply.


The $80 million "Baligate" banking scandal was unveiled, amid charges over a controversial loan repayment by the Bank of Bali to a company headed by a senior official of the then-ruling Golkar party. 78.5% of voters in East Timor cast votes in favor of secession on Aug. 30 during a referendum. The People's Consultative Assembly (MPR), which approved East Timor's annexation as a province in 1976, might refuse to ratify its secession.


MPR was sworn in on Oct. 1, and the new body elected Abdurrahman Wahid as the president, who selected Megawati Sukarnoputri, the leader of the popular PDI-P party, for the vice presidency. Currency appreciated sharply by 22.4%.


Separatists in the Aceh province called for an independence referendum.


The government's senior economics minister Kwik Kian Gie reported that the government would sell a majority stake in state telecommunication companies.


GDP grew 3.2% and IMF sent out a new letter of intent after 1999 suspension of lending due to the Bank Bali corruption scandal. Political instability worsened with the publication of reports by the U.N. Commission on Human Rights in East Timor and the Indonesian Human Rights Commission. General Wiranto was suspended.


IMF delayed disbursement of the April tranche of its Extended Fund Facility, causing a downward spiral of the rupiah.


S&P downgraded Indonesia's foreign currency ratings to selective default (SD).


On May 19, IMF signed an agreement with the Indonesian government to release US$400 million in disbursements in exchange for newly agreed-on goals for bank and corporate restructuring. Interest rates were at the record low levels of 10.9% in early May and GDP accelerated to 4.1%, boosted by increased investments and exports. But two key economic cabinet ministers were dismissed.


The rupiah decreased nearly 40% from its peak when Abdurrahman Wahid was elected president, with rupiah 9500 to the US $1.


President Abdurrahman Wahid surrendered day-to-day administration to Vice President Megawati Sukarnoputri, and senior econoimcs minister Kwik Kian Gie resigned.


IMF and the Indonesia signed a new letter of intent with banking sector reform, corporate restructuring, governance, and law enforcement as key issues.


A bomb exploded at the Jakarta Stock Exchange, killing 11 people. Trading resumed 5 days later.


S&P raised Indonesia's foreign currency ratings to 'B-/B' on Oct 2, following debt restructuring. But the rupiah continued to drop, losing almost 25% of its value against the dollar.


In the first quarter, following violence in the Aceh province, Exxon Mobil closed operations for the first time in more than 24 years.


S&P cut Indonesia's rating outlook to negative.


S&P lowered the long-term local and foreign currency ratings for Indonesia as a result of political instability, poor public finances, and a high level of indebtedness. Parliament issued a memorandum of censure against the president for the second time. President Abdurrahman Wahid announced a cabinet reshuffle, replacing the finance and economic ministers.


In the third quarter, the parliament made Megawati Sukarnoputri the president after impeaching Mr. Wahid and rejected his declaration of a state of emergency. The stock market rallied.


In the fourth quarter, S&P lowered Indonesia’s long-term sovereign debt rating and outlook to negative from stable following foreign debt rescheduling. The government reached an agreement with the IMF over a draft letter of intent with new macroeconomic targets and reform efforts on privatization of the banking sector.


Parliament dismisses President Wahid over allegations of corruption and incompetence. Vice-President Megawati Sukarnoputri is sworn in as his replacement, even as Wahid refuses to leave the presidential palace.


Indonesia inaugurates human rights court, which is expected to test government's willingness to hold the military accountable for atrocities in East Timor after the territory's independence vote in 1999.


Irian Jaya province granted greater autonomy by Jakarta, allowed to adopt locally-preferred name of Papua.


East Timor, Indonesia sign agreements aimed at easing relations before East Timor becomes fully independent in May.


The governor of Indonesia's central bank, Bank of Indonesia, has been sentenced to three years in prison for his role in one of the country's biggest corruption scandals, commonly known as 'Baligate', in 1999.


The government is preparing to stage one of the biggest bad debt sales ever seen in the region, with US$17bn worth of non-performing loans (NPLs) slated for sell-off over the next two months.


Top legislators pass constitutional changes seen as a key step towards democracy. For the first time, Indonesian voters will be able to elect their president and vice president.b6


Bomb attack on the Kuta Beach nightclub district on Bali kills 202 people, most of them tourists. Another bomb explodes near the US consulate in Sanur near Kuta, without causing any injury. Government gives police wide powers to pursue the perpetrators. b6


Muslim Cleric Abu Bakar Ba'asyir is arrested shortly after the bombings. He is accused of plotting to overthrow the government as the alleged spiritual leader of Jemaah Islamiah (JI), the group thought to be behind the Bali bombing.b6


Government and separatist Free Aceh Movement (Gam) sign peace deal in Geneva, aimed at ending 26 years of violence. The accord provides for autonomy and free elections in the Muslim oil-rich province of Aceh on the northern tip of Sumatra; in return the Gam must disarm.b6


Indonesia received pledges of economic assistance worth US$ 2.7bn from the country's main donor forum, the Consultative Group on Indonesia (CGI).


Indonesia's House of Representatives endorsed a new labor law. One particular issue is that severance payments should be nine times an employee's monthly salary. b1


The Indonesian parliament has this week passed a new electoral law, the main bone of contention being the notion of a 2% threshold that parties would have to surmount in order to secure seats in parliament


A decision is made by parliament to abolish value added tax (VAT) on the import of key capital goods - mostly machinery - and raw materials for the agricultural, forestry and fisheries sectors.


Peace talks between government and Gam separatists break down; government mounts military offensive against Gam rebels in Aceh. Martial law is imposed.


Three Bali bombing suspects are found guilty and sentenced to death for their roles in the 2002 attacks. A fourth suspect is given life imprisonment.b1


An initial public offering (IPO) of Bank Mandiri, Indonesia's largest bank, marks further progress in the country's attempt to return the banking sector into private hands.


Finance Minister Boedino confirmed that Indonesia is planning to return to international debt markets for the first time since the 1997-1998 Asian financial crisis with a US$450m global issue. b1


Indonesian legislators have passed a bill to bring national money-laundering laws into line with international standards.


The Philippines-based Asian Development Bank (ADB) has announced a three-year plan to offer conditional poverty reduction loans - worth approximately US$3.27bn - to the Indonesian government. b1


A new autonomy law introduced by the home ministry, mandating that from next year, local leaders must be directly elected. b1


International donors, grouped under the Consultative Group on Indonesia (CGI), pledged US$3.4bn in emergency loans in order to ease Indonesia's transition from direct International Monetary Fund (IMF) financial support.


Minister for Settlement and Regional Infrastructure Soenarno announced that, within two years, construction will begin on a bridge linking the Indonesian islands of Sumatra, Bali and Java.b1


The Indonesian government of President Megawati Sukarnoputri announced plans to launch a series of nationwide infrastructure development programs worth an estimated Rp200trn (US$23.5bn), aimed at bolstering the country's telecommunications, transport and gas pipeline sectors by 2009.


Last of 33 Bali bombing defendants receives jail sentence in Indonesia. b1


Golkar party of former President Suharto wins greatest share of vote, with Megawati Sukarnoputri's PDI-P coming second.


Clashes on the Moluccas Islands between Christians and Muslims leave 22 people dead.


Martial law replaced by state of emergency in Aceh, a year after it was imposed. b6


Regulations on Foreign Investors


Restrictions: 1. In general, there are no restrictions on investment or the inflow and repatriation of funds. But repatriation of capital is permitted only after any tax concessions given to the foreign company have expired. 2. Foreign investors may purchase no more than 49% of the stocks of listed companies.

Taxation: 20% dividend tax (unless smaller amount has been established by a tax treaty with investor's country) and no tax on capital gains. 0.3% tax on sale transactions.a5(first entry)


Restrictions: Starting January, Indonesia prohibited lending and overdraft to non-residents, placing funds with non-residents, purchase of rupiah-denominated securities issued by non-residents, interoffice transactions in rupiah, and equity participation in rupiah with non-residents. b3

Taxation: no change.


Restrictions: 1. Sectors closed to foreign investors: germ plasm cultivation, forest concessions, lumber contractors, taxi/bus transport and small-scale water transport services, print media, TV, radio, film and cinema, including distribution and exhibition, small-scale retail trade. 2. Foreigners can own up to 45% of business in the following sectors: airport/seaport construction and operation, electricity production, transmission and distribution, atomic power plants, shipping, drinking water; railway service, certain medical services. b7

Taxation: no change.


Restrictions: No change.

Taxation: VAT on the import of key capital goods - mostly machinery - and raw materials for the agricultural, forestry and fisheries sectors is abolished. b1